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Chapter 1: World economic crisis of 2007-2008

1. Outbreak
2. Causes
3. Effects

1. Outbreak
The current economic and financial crisis appears to be without precedent in the last half
century. The economic recession spreads in the US, Europe and Japan and the impact is felt to
be much more painful than the economic loss from 1981-1982. A massive decrease in
confidence in both the business sector and the consumers, both responding to restricting
expenditure, is in full progress. In 2008, for the first time after the 1930s, the world economy
experiences a systemic financial crisis: on September 18, the international financial system is on
the verge of collapse and the credit market ceases work in the next four weeks. But the
beginning of this economic crisis goes back to 2007, when in August, 9, the French bank BNP
Paribas suspended its transactions for three of its hedge funds which had contributions in some
American so called subprimes.
Even if the effects of the latest crisis are still not known, bankruptcy of large financial
institutions and massive government interventions in the world are signs of a strong economic
depression, comparable to the great depression of 1929-1933.

2. Causes
The cause of the financial crisis was the abundance of liquidity created by the major
central banks of the world and the desire of countries exporting oil and gas to limit currency
appreciation. There was also an overflow of savings, generated by the growing integration into
the global economy of countries with high rates of accumulation and redistribution of wealth and
income to exporters of goods, raw materials such as oil and natural gas. Abundant liquidity and
oversaturation of savings have created available resources for investments, including the
sophisticated financial instruments, not easily understood by some investors.
The consequences of the existence of abundant liquidity were very low interest rates and
reduced volatility. Together, these consequences led to the increasing appetite for assets with big
gains. In addition, the low volatility of the market created a tendency to underestimate risk and a
real lack of vigilance of the investors.





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3. Effects
Risk margins were also very low and non-discriminatory. Together, low interest rates, the
appetite for big gains, with low risk of vigilance and small margins masked the price signals to
financial markets and led to insufficient understanding of the risks involved. They operated as an
aggravating factor, to which a range of causes can be added: frantic cracks in the securitization
business model of rating agencies, and increased international competition for deregulations.
Therefore once the crisis was triggered by failures of repayments on housing loans, the financial
market became transparent.
In the US and in some European States, Governments and central banks responded by
improving liquidity; the granting of Government guarantees for loans; recapitalization of
financial institutions; ensuring the latest issues of the insured banks; preventing the collapse of
large interconnected enterprises; purchasing bank shares; coordinating interest rates cuts.
Although such measures were implemented, after 17 months of restlessness, the
triggering market remained transparent, which magnified the financial crisis and resulted in its
passing in the real sector of the economy, firstly in the USA, then in other countries.

Chapter 2: The economic crisis in EU

1. General data
2. Povertyindicators in UE


1. General data
The European Union is one of the most ambitious projects in the history of modern and
contemporary time, which has succeeded in establishing a climate of peace and stability in a
turbulent post-war context. The objective of the project is expressed in a very suggestive manner
by one of its artisans, Jean Monnet, who, in a speech held in Washington on April 30, 1952 ,
said : We do not unify states , we are uniting people.
The economic crisis began as a national recession in Europe in December 2007, but
only met the IMF criteria for being a global recession, requiring a decline in annual per-capita
real World GDP (Purchasing Power Parity weighted), in the single calendar year 2009. The
IMF global recession definition does not evaluate quarterly data, despite the fact that quarterly
data are being utilized as recession definition criteria by all G20 members, representing 80% of
the World GDP. The exact start and end-point for the recession at the national level, however,
greatly varied from country to country, and some countries did not experience any recession at
all.


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Many countries in Europe had a second recession, starting on average about three years
after the first one. Yet,Germany, Switzerland and Swedendid not have a second recession, as
well as most countries outside Europe.
The crisis in Europe generally progressed from banking system crises to sovereign debt
crises, as many countries elected to bailout their banking systems using taxpayer money. Greece
was different in that it faced large public debts rather than problems within its banking system.
Several countries received bailout packages from the "troika" (European Commission, European
Central Bank, International Monetary Fund), which also implemented a series of emergency
measures.

Many European countries embarked on austerity programs, reducing their budget deficits
relative to GDP from 2010 to 2011. For example, according to the CIA World Factbook, Greece
improved its budget deficit from 10.4% GDP in 2010 to 9.6% in 2011. Iceland, Italy, Ireland,
Portugal, France, and Spain also improved their budget deficits from 2010 to 2011 relative to
GDP.
However, with the exception of Germany, each
of these countries had public-debt-to-GDP
ratios that increased from 2010 to 2011, as
indicated in the chart at right. Greece's public-
debt-to-GDP ratio increased from 143% in
2010 to 165% in 2011.This indicates that
despite improving budget deficits, GDP growth
was not sufficient to support a decline in the
debt-to-GDP ratio for these countries during
this period. Eurostat reported that the debt to
GDP ratio for the 17 Euro area countries
together was 70.1% in 2008, 79.9% in 2009,
85.3% in 2010, and 87.2% in 2011.
en.wikipedia.org

According to the CIA World Factbook, from 2010 to 2011, the unemployment rates in
Spain, Greece, Italy, Ireland, Portugal, and the UK increased. France had no significant changes,
while in Germany and Iceland the unemployment rate declined. Eurostat reported that Eurozone
unemployment reached record levels in September 2012 at 11.6%, up from 10.3% the prior year.
Unemployment varied significantly by country.



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Economist Martin Wolf analysed
the relationship between
cumulative GDP growth from
2008-2012 and total reduction in
budget deficits due to austerity
policies (see chart at right) in
several European countries
during April 2012. He concluded
that: "In all, there is no evidence
here that large fiscal contractions
[budget deficit reductions] bring
benefits to confidence and
growth that offset the direct
effects of the contractions. They
bring exactly what one would
expect:
http://gulzar05.blogspot.ro
small contractions bring recessions and big contractions bring depressions." Changes in budget
balances (deficits or surpluses) explained approximately 53% of the change in GDP, according
to the equation derived from the IMF data used in his analysis.
Economist Paul Krugman analysed the relationship between GDP and reduction in
budget deficits for several European countries in April 2012 and concluded that austerity was
slowing growth, similar to Martin Wolf. He also wrote: "... this also implies that 1 euro of
austerity yields only about 0.4 euros of reduced deficit, even in the short run. No wonder, then,
that the whole austerity enterprise is spiraling into disaster.

European policy responses were firstly limitedto a small number of countries Spain
and Italy in 2008 and the financial rescue plan established one year later met reluctancy from
some European partners like Germany.


2. Poverty indicators in UE
The effects of the financial crisis at the level of the population are also reflected in the
poverty statistics, whose rate rose in the whole European Union in 2011 to 119. 6million people,
this representing 24.2% of the total population, an increase from the 23.6% in 2010 and 2008.
The main places where it rose are: Bulgaria (41%), Romania (40.3%) and Latvia (40.1%),
respectively Lithuania (33.4%). At the other extreme is the Czech Republic (15.3%), The
Netherlands (15.7%), Sweden (16.1%), Luxembourg (16.9%) and Austria (16.8%). These being


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said, there is a decrease of the poverty and the social exclusion of 3.7 pp in Italy and 3.3 pp in
Greece, Romania (-1.1pp) and Portugal (0.9 pp)
The most vulnerable group of poverty is represented by the children, with 27 pp, the most
exposed being the ones from Bulgaria (51. 8%), Romania (49.1%), Latvia (43.6%),Hungary
(39.6 %), at the other pole being Norway (13%) , Sweden (15.9%) and Finland (16.1%)
The rate of the poverty in the active population is also high, at the level of EU being of
24.3pp , the most exposed being the ones in Bulgaria (45.2 % ) , Latvia (43.6 %) , Hungary
(39.6%), and the lowest rate of the poverty amongst active population is Switzerland (13.9 pp) ,
Island (14.3 pp ) , Czech Republic (15.1pp) , Sweden (15.4 pp ) and Norway (15.9 pp)
The old people, who are identified at the first sight as being the most exposed to poverty,
actually represent the least exposed group, taking into consideration that 20.5% are confronted
with it. In states like Bulgaria, Cyprus and Croatia, the old people are more exposed than the rest
of the population. The ones from Romania represent 35.3% of the 40.3% of the total population.
On the other pole, with the least poverty rate is Iceland (4.5 pp), Luxembourg (4.7 pp ) and
Netherlands ( 6.9 pp).
From the total population exposed to poverty in EU in 2011, 16.9 pp are still in the zone
of severe deprivation, respectively of social exclusion and after they received social
compensation, representing 0.9 pp more than in 2010, the percentage being higher than the one
in 2010 in Estonia (1.7 pp in 2011 compared to 2010), Bulgaria (1.6pp ) and Hungary (1.5pp).
Romania, Sweden and Slovakia (1.4pp). The highest percentage of the poor population exposed
to deprivation and after the social transfers (financial aid, the pension is not in this category) is
Bulgaria (22.3 pp ), followed by Romania (22.2%), Spain (21.8 %) and Greece (21.4 %), the
least rate being in Czech Republic (9.8pp ), the Netherlands (11.0%) , Austria (12.6 ) , Denmark
and Slovakia (13 pp)












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Chapter 3: The evolution of the economic crisis in Romania
1. Comparative analysis 2008-2012
2. Romania today


1. Comparative analysis 2008-2012

Evolution 2008 2012
Gross Domestic Product
(GDP)
Nominal GDP was calculated
at 195.71 billion lei, with an
annual increase rate of 8.2%
Nominal GDP was calculated
at 109.4 billion lei ,with an
annual increase rate of 1.7%



Foreign trade
In the first 6 months of the
year, the total value of
foreign trades 17 billion
euros and the total value of
imports was 26 billioneuros
(9 billion trade deficit)
FOB (free on board) foreign
trades raised to 22. 3 billion
euros while the CIF (cost
insurance and freight)
importations amounted to
26.8 billion euros.
Account deficit was
calculated at 12. 4 billion
euros.
Account deficit was
calculated at 2.4 billion
euros.
Number of employees and
unemployment rate
4.827 million employees in
the economic sector and an
unemployment rate of 3.7%
4.301 million employees in
the economic sector and an
unemployment rate of
4.56%
Average gross
salary
1,738.5 lei (=1, 273 lei
net salary)
2,140 lei (=1,552 lei
net salary)
Rate of exchange 1 = 3.6557 lei and
$1= 2.3506 lei
1 = 4.4603 lei and
$1=3.5570 lei
Budgetary deficit 1.18 % (5.19 billion lei) from
gross domestic product
1.12 % (6.8 billion lei) from
gross domestic product


Of these indicators, the evolution of the most important will be analyzedhere.


a. Gross domestic product [GDC]

2008: At the end of the first half of 2008, i.e. the end of July, the nominal GDC was RON
195.71 billion. In real terms, the GDP had grown by 9.3 % compared with the same quarter of
the previous year. Annual growth in the first quarter was 8.2 %.


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Between 2009 and 2012, the largest declines were recorded in quarters II and III of the year
2009, when the GDP had declined by 8%, respectively 7.3%, compared to the previous quarters
of the year.
The economy began recovering in the first quarter from 2011 (+ 1.7% compared to the first
quarter of the previous year) reaching a "peak" of 4.4% in the third quarter of the year.
2012: In the second quarter of 2012 the Romanian economy had an increase in GDP of
0.5% compared with the previous quarter and 1.7% compared to the same quarter of previous
year. At the end of the first quarter of the year the GDP was RON 109.4 billion.


b. Foreign trade

2008: From the perspective of foreign trade, in the first six months of the year 2008 (first
and second quarters) the exports were 17 billion euros, while imports were 16 billion (trade
deficit of 9 billion euros in the first six months),while the current account deficit was 12.4 billion
euros.
The rate of imports fell more abruptly than the exports, Romania dropped to a minimum in
January 2011, when the trade deficit was 0.21 billion euros.
In 2008 a significant proportion of exports and imports was held by groups of products
with low value added:mineral fuels, lubricants and related materials,then machinery and
transport equipment and other manufactured products.


c. Number of employees and unemployment rate. Gross average salary

2008: The total number of employees in the economy was 4.827 million and and the
economy had an unemployment rate of 3.7% (or 337 100 unemployed). Gross average wage at
the end of the second quarter was RON 1738.5 (1,273 average net salary).
On account of economic slowdown and entering recession, after June 2008 the number of
employees decreased steadily to a minimum of 4.095 million employees in January 2011,
subsequently starting to grow after the economic growth resumed.
2012: The number of employees reached 4.301 million people in May, whilst the
unemployment rate was 409. 9 thousand people (or 4.56%). The average gross salary: 2140 USD
(1,552 average net salary).



2. Romania today
The effects of the international financial crisis spread in the Romanian economy too.
However, in terms of direct impact, the banking system has been less affected because it wasn't
exposed to toxic assets, as well as due to the prudential and administrative measures adopted by
the National Bank of Romania over the years.


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Indirectly, however, due to the international financial crisis and especially its obvious
consequence the recession in the developed countries the Romanian economy confronts with
a decrease in exports. The financial channel, with limited access to external financing, restricts
the volume of crediting, and generates difficulties in private foreign debt service. The exchange
rate channel is reflected in the depreciation of the national currency. Regarding the confidence-
building measures, there has been a withdrawal of investors from Eastern Europe countries. This
aspect caused panic in the monetary and currency market and also there were some speculative
attackswhich made it necessary for the intervention of NBR. In the end, there were effects of
wealth and balance sheet, net asset deterioration of the population and, as a result of the high
proportion of loans in foreign currency and a fall in the price of movable and immovable assets.
The propagation of these effects makes the uncertainty related to the development of
economic variables to be extremely high. It contributes, in its turn, the crisis by emphasizing the
negative effects that it has on expectations and degree of prudence augmentation through to
consumers and merchants.
In Romania, the answer to the adverse effects of the crisis may not be similar to that of
some European countries or the USA. There are a few differences between the Romanian
economy and these economies, which do not allow copying simply packages of measures
developed there. In essence, it's about the fact that the Romanian economy has a large current
account deficit, indicating its dependence on external financing.
We have a choice between reducing the deficit or ordering market reduction in current
conditions of tension and distrust, with dramatic consequences for the exchange rate and
economic growth.


Chapter 4: The effects of the crisis in the North Eastern Region and
in the district of Bacau
1. Economic indicators
2. The regional evolution of unemplyment and the employed labour force


1. Economic indicators
Under the economic-financial impact of crisis, the economic indicators didnt witness the
same evolution in 2009 and 2010, according to data provided by the Chamber of Commerce and
Industry.The biggest regression was felt in the dynamic sectors of the economy in Bacau, as well
as in construction and trade. In 2009, 132 commercial companies went bankrupt, and 5.200 out
of 27.000 trades have stopped their activity. According to the statistics provided by the Chamber


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of Commerce, in Bacau the turnover decreased to 28-30% in 2009,the start of 2010 bringing the
intensification of this trend. Unemployment was 8.93% in December 2009, double the amount
recorded in the same month of the year 2007.
The ability of economic sectors to absorb labour is declining,while the employment rate
is increasing in other areas. From data for 2008-2010 we can also observe a decrease in the
number of active people: the civil active population in 2008 was 257,500 people,the number of
employed people decreased to 225,000 in 2010 (a decrease of 12.5%), and this decrease was
more pronounced for female population than male.

2007 2008 2009
Total investments 98,7 109,1 99,4
Construction works 94,4 116,5 92,2
Equipment with and
without fitting
83,2 114,3 113,7
Means of transport 204 85,5 90
The comparative investment situation in Bacau
- investments index -

One major consequence of the crisis was the decrease of the number of the employed
population and, directly, the increase of the percentage of the unemployed. Although 2012 seems
to have brought, in the department of Bacau, a slight change (a small plus for the rate of the
employed people), at the level of the North East Region (NORD EST), the rate of
unemployment continues to increase.


Average civil employed population
- thousands people

2005 2006 2007 2008 2009 2010 2011 2012
Total economy 1152,5 8245,1 8447,2 8476,0 8300,0 8370,0 8445,0 8540,0
NORD EST
(region)
1235,8 1228,2 1233,9 1234,5 1200,0 1197,6 1197,6 1198,7
Bacau 219,6 220,5 220,4 219,7 213,8 213,6 213,4 213,6
Botosani 149,2 148,5 151,3 151,0 145,7 145,4 145,3 145,3
Iasi 287,1 285,2 287,9 289,7 285,4 285,7 286,4 287,5
Neamt 197,2 196,7 193,2 193,1 188,7 187,9 187,9 187,9
Suceava 238,8 234,7 238,3 237,9 229,9 228,7 228,6 228,5
Vaslui 143,9 142,6 142,8 142,9 136,5 136,2 136,0 135,9



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2. The regional evolution of unemployment (NORD-EST Region)

Statistics show that the outbreak of the economic crisis led to major increase in
unemployment rates.



Chapter 5: Buhusi in the context of the economic crisis

1. Young people facing crisis
2.Crime rates 2007-2012
3. Example of business affected by crisis


1. Young people facing crisis

A group of 100 young people was questioned on different topics related to the economic
crisis.


0
1
2
3
4
5
6
7
8
9
2004 2005 2006 2007 2008 2009 2010 2011
Unemployment rate, %


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1. How much did the crisis affect you?




2. How did the crisis affect your family?






Much Enough Not too much Not at all
Both parents lost their jobs
One of the parents lost their job
(At least) one family member
left homein order to find a job
Our financial situation has gone
worse
My parents might not give me
any money
We limited our daily expenses
to the bare necessities
It didnt affect us at all
Others


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3. How did the crisis affect your personality?




4.How did the crisis affect people in general?


I am worrying about the future
There is much tension in the
family
There is violence around me
I had to give up on many things
that I used to like
I dont feel safe
I feel scared
I feel annoyed
I feel frustrated
I feel aggrieved
I am more optimistic
I realised that I had to rely on my
own forces
They became more indifferent
The became more passive
They became more aggressive
They became more suspicious
Now they care more about each
other
f. Others


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5. Before the crisis, I thought that after graduation I would




6.Now, after graduation I will






Find a good job
Study
Be unemployed
Marry and have my own family
Go abroad and study or work
Others
Find a good job
Study
Be unemployed
Marry and have my own family
Go abroad and study or work
Others


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7. Who is responsible for the crisis?




8. Do you think that if you emigrate abroad you will have to face racist behaviour?






Politicians
Democracy
The governors-
The European Union-
The USA
Ourselves
Others-
Yes
No
No answer


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9. Which of the following principles best describes your point of view?






2. Crime rates 2007-2012

According to data provided by local Police Department, crime rates reached higher levels
in 2008 and in 2011; these peaks can be related to two major events; the outbreak of the
economic crisis in 2008 and the fact that 2011 follows a very difficult period in Romanian
history: 2010 was marked by many cuts: salary, retirement pensions, social allowances, which all
contributed to a decrease in the standard of living.



We did not start the crisis, but
we have to suffer its
consequences
We had to keep our heads
down and accept the decisions
of some international
organisations
I just want a job, this is all I
want, even if I will be paid much
less as compared to my studies
and my skills-
Others
0
100
200
300
400
500
600
Crime rates in
Buhusi
2007
2008
2009
2010
2011
2012


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3. Example of business affected by crisis
When you want to set up a business, the following must be taken into consideration: having the
raw material (well-made clothes, accessories), having sufficient financial resources to support
the business, keeping the business active and developing the activity in a fully populated area.
A negative example could be the following:
One day, an entrepreneur thought about setting up his own business: a clothes shop. At that
moment he had the raw material, a space in a central place and some people who could make
publicity for him.
For a few years, this affair was very profitable. In that area, there werent any other similar shops
and the merchandise was always on the customers taste. In these conditions the ownerdecided to
extend the commodity market. He bought a new place and he employed more workers.
After that, when the owner didnt have enough money to buy the merchandise, the sales started
to decrease considerably. He was forced to geta loan in order to support his business, but the
profit was lower and lower. Affected by the crisis and covered in debts, the owner decided to
close his business.

0
10
20
30
40
50
60
70
80
2007
2008
2009
2010
2011
2012


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2007 2008 2009 2010 2011 2012
Profit-I
market
Profit-I
market
Profit-II
market
Profit-I
market
Profit-II
market
Profit-I
market
January 600 1200 750 400 150 200
February 800 1000 820 380 125 170
March 1050 1050 T860 430 100 60
April 1100 900 700 450 70 35
May 1250 880 650 370 50 -
June 1400 800 600 300 20 -
July 1700 760 540 280 - -
August 1650 720 510 260 - -
September 1760 670 300 290 - -
October 1800 600 220 320 - -
November 1500 540 200 200 - -
December 1300 500 280 310 - -

Total: 15910 9620 6430 3990 515 465
*the prices are specified in RON(Romanian currency).